Fortis calls off demerger of diagnostics arm, SRL, citing headwinds for the sector

Fortis had approved the demerger of SRL in August 2016 to unlock value of the diagnostic business and focus on its core hospital business

Fortis Healthcare has decided to call off the demerger of its diagnostics business, SRL, into listed subsidiary Fortis Malar Hospitals citing headwinds in healthcare industry and less than optimum performance of the business.

Fortis had approved the demerger of SRL in August 2016 to unlock value of the diagnostic business and focus on its core hospital business.

The company, in February 2017, had approached National Company Law Tribunal (NCLT), Chandigarh Bench, for approval of the composite scheme of arrangement and amalgamation between the company, Fortis Malar Hospitals, SRL and their respective shareholders and creditors.

Under the scheme of arrangement, Fortis was to transfer SRL to Fortis Malar. Fortis Malar would have sold its hospital business in Chennai to Fortis on slump sale basis for Rs 43 crore.

"The entire process was expected to take 6-8 months, however, due to reasons beyond the company’s control, the process has taken over 19 months and is still not complete," said Fortis in a statement to stock exchanges.

"During this period of 19 months, healthcare sector has witnessed strong headwinds and performance of diagnostics business has not been optimum. Given the challenges/headwinds in the sector and less than optimum performance of the diagnostics business during the period of delay, the demerger and a subsequent listing may result in value unlocking that may not be optimum for Fortis shareholders at this point of time," the company said.

The company said it had decided to initiate a fresh, time-bound process to optimise the company’s and shareholders’ short and long-term interests.

SRL is India's largest diagnostics firm with network of 376 laboratories across India, Dubai, Sri Lanka and Nepal. Private equity firms hold around 31 percent stake in SRL, while the rest is held by Fortis Healthcare.

Shares of Fortis dropped 0.80 percent and were trading at Rs 137.10 on BSE at 10.10 am, the benchmark Sensex declined 0.44 percent and was trading at 35,580.73 points.